As we enter the final two weeks of the first quarter of 2013 it is remarkable to see where the market has come and how steadfast it has been in getting here. It was only two months ago that traders were exiting positions for the safety of the sidelines, clients were calling to reassert risk measures, and the media was producing panic stricken headlines shouting words like “cliff” and “recession.” I must say, the arguments at the time were equally coherent regardless of your market stance. In fact they still are despite the recent highs. It did indeed seem like the sidelines were the place to be as no one wanted to be the first to wander of the looming fiscal cliff. Then just as everyone returned to work from the New Year the market decided to assert itself and the S&&P rallied 35 points and closed on the high.
Those who waited for a pull back to finally buy in on the rally waited 7 weeks and some 102 points. The psychological resistance at 1500 had been broken and the market seemed quit resilient. Negative news was shrugged off and positive news however marginally positive, incited a short term buying frenzy. When the pull back did occur on Feb 20th it was more of a pause then a pull back as the S&P closed 18 points lower. Granted there was a larger retraction five sessions later after some sideways trading that did give up 28 points on the day. Since then the market has made new highs and seems to be riding on jobs data that has outpaced expectations. While jobs data is improving, there is the concern that the improvement could influence the Fed to halt or reduce their $85 billion in monthly bond purchases. This could certainly put the reins on this bull but to what degree it is impossible to say. The Fed will not likely injure their 3 year recovery plan easily. We will hear from the Federal Open Market Meeting after their meeting March 19th and 20th.
Bull market or not, a 3-5% correction will often times happen in any market. It’s the major market correction that everyone is talking about now and what can cause it. If the last three years are any indication, the catalyst that could send the market running away from all time highs would be a crisis in the euro zone coupled with the budget battle in Washington. I know I just threw a pretty big net with that statement but it is hard to be more specific. A rate spike in the EU, the drifting budget battle, or a retraction from QE could all be the catalyst that tips the scales. At the same time if the EU were going to have a major effect I would have expected the Italian elections to do more than cause a short four day decline.
Forecasting events that have not yet taken place and may not ever occur is impossible to do. Despite the fact that countless TV stations, major publications, and the letter you are reading now will all give you their best educated opinion. As I hear all the time, “you have to take what the market gives you.” The market has given generously so far this year. The best you can do is position yourself to profit in the current trend and make sure that your risk contingencies are in place and well understood.
If anything written above inspires a comment or question please do not hesitate to contact me. Likewise if you would like information on a specific CTA or this asset class in general, please feel free to contact me by phone (312)913-9603 or email at tresch@iasg.com.